Software LicenseIn the Eden-like world of early hackerdom, programmers shared new ideas and cool tools with earnest abandon, creating a culture of innovation that built the foundations of computing as we now know it. At places like MIT, Berkeley and Stanford, all software was treated as a "commons"—available to anyone to freely use, modify or improve. Throughout the '60s and '70s, these pioneers egged each other on, worked on each other's stuff and poked around under the hood with a playful lack of restraint.

Ah, but that was then. Software, of course, turned out to have value. More value, really, than the machines it ran on (although that wasn't entirely obvious at the time). And anything that has value can and will be exploited for commercial gain.The process started slowly. Some of the grad students were hired away to work in new software companies and told to stop sharing their ideas with old pals still stuck in school. Clever designers began making sure that their cleverest bits of code were impenetrably hidden. By the early '80s, Digital, IBM and AT&T had effectively killed off all that unprofitably promiscuous code sharing by introducing proprietary operating systems that could actually earn them some real money—and then licensing the systems' use.

Using licenses in a software context turned out to be an inspired commercial maneuver. Simply selling the software outright as if it were a tangible product, like a couch or a potato, would be a loser play. Those you sold it to would then have the unfettered right to make infinite, perfect copies and to give or sell your hard—earned work to whomever they pleased. No thanks. Way better to retain ownership in your code and grant some carefully defined rights to use your software. A license agreement does the trick.

So, when people "buy" your software, they don't really own anything but the privilege to use the software in ways allowed by the license agreement. You can also shoehorn all kinds of liability limitation language into your license agreement. Which is important, given that software always contains flaws and can sometimes really make a mess of things.

PiracyAlthough resented by the elite corps of university-based hackers, the move to restrictively licensed software was a cinch. Commercial software back then ran primarily on big bruiser machines that were owned by big bruiser companies familiar with the nuances of contract and intellectual property law. By its nature, this group of consumers didn't fight very hard for the right to dig into the guts of software code.

Yet even in the mid-'70s, well below the radar lurked a number of dedicated code slingers working on much smaller home-built systems like the tiny MITS Altair, arguably the first personal computer. These hobbyists couldn't care less about the commercial value of software and enthusiastically traded pirated copies among themselves. This drew the ire of a dinky company called Micro-Soft, then operating out of Albuquerque, New Mexico. Micro-Soft's primary revenue came from designing and selling versions of the Basic programming language for those little home computers. In a now famous 1976 "Open Letter to Hobbyists," signed by William Henry Gates III, Micro-Soft's leader complained bitterly that only 10 percent of Basic users actually bought their software and that the rest simply stole it.

Shrink-wrap LicenseWith the rapid emergence of personal computing for business purposes in the early '80s, however, software builders (the now very successful and slightly renamed Microsoft among them) fell on the licensing model as a great way to control their prized assets. First, though, they had to overcome a vexing technical hurdle: how to enter into license agreements with thousands and then millions of individual end-users.

You certainly didn't want to negotiate with each of them. Controlling software distribution for the big iron machines of the previous decade had been straightforward because the pool of participants was small and the underlying licenses were carefully drafted by parties with roughly equal bargaining power. Not so with the smaller consumer stuff. What was needed was an automatic way of getting users to enter into full licensing contracts without all that messy bargaining nonsense.

Inspired by the "pay now, terms later" contracts of the airline and insurance sectors, the software industry invented the shrink-wrap license, whereby the existence of a license agreement is announced on the outside of the software package. Breaking the wrapper or a seal means the buyer is stuck with the license terms—whatever they may be—contained inside the package. It's completely one-sided, but no one has come up with a better plan. It's the most efficient way to distribute software without losing control.

Click-wrap/Browser-wrap LicenseSo what happens when software stops being distributed in shrink-wrapped boxes? What if it shucks off its disk-bound body and is distributed to users over the Internet free of packaging? Easy: click-wrap and browser-wrap license agreements. Before using electronically distributed software, the user must agree to be bound by the terms of a license agreement by clicking on a button labeled something like "I agree." The chances that anyone actually reads these terms and understands what clicking on the "I agree" button means are slim indeed. But it's the way of things. Your only option is not to click that button.

UCITAInterestingly, many of the terms in a conventional wrap license—be it shrink, click or browser—wouldn't be enforceable under normal contract law. So to shore up their position, the large software houses have lobbied hard for passage of the Uniform Computer Information Transaction Act. Ten years in the making and hideously complex, this companion to the Uniform Commercial Code has been passed into law by Maryland and Virginia and is under consideration by a number of other states. Its primary purpose is to codify the wrap license concepts—many of which are untested by litigation—into law.

And that has brewed a lot of fear. UCITA's passage in the rest of the states is by no means certain, but it provides much to worry about. Software buyers would be well-advised to understand its implications. So here's what you do. To learn why it could be a good thing, head to www.ucitaonline.com; to find out why a huge coalition of developers, libraries and consumer advocates are freaked right out, check www.4cite.org.